Revolut, a prominent fintech unicorn, has been navigating a challenging path in its quest to secure a banking license in the UK. Recently, FinTelegram received reports from customers who experienced sudden terminations of their accounts by Revolut. This move appears to be a strategic decision to de-risk its customer base, a significant step towards appeasing regulators and strengthening its application for a banking license.
De-Risking Strategy After Too Much Risk
Customers have been left bewildered by Revolut‘s abrupt decision to close their accounts without providing a clear explanation. This action seems to be part of Revolut’s broader de-risking strategy, where the company is distancing itself from clients it categorizes as high-risk. This approach is not uncommon among financial institutions seeking regulatory approval or looking to maintain compliance with existing regulatory frameworks.
This is particularly astonishing in the case of Revolut because the fintech has also aggressively advertised to customers in the high-risk segment in recent years. FinTelegram has discovered Revolut as a payment processor for many high-risk merchants and also for scams. This should also have caught the attention of UK regulators. Consequently, the current de-risking strategy seems to be a reasonable way to become finally compliant!
Understanding De-Risking
De-risking is a strategy employed by financial institutions to reduce their exposure to certain risks, particularly those related to compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations. This often involves terminating or restricting business relationships with clients deemed high-risk, such as:
- Money service businesses: Entities involved in money transfers or remittances.
- Nonprofit organizations: Charities and other non-governmental organizations.
- Correspondent banks: Banks that maintain accounts with other banks to facilitate cross-border transactions.
- Foreign embassies: Diplomatic missions representing other countries.
The primary reasons for de-risking are cost/benefit considerations and concerns about anti-money laundering (AML) and combating the financing of terrorism (CFT) risks. However, this practice can have unintended consequences, including:
- Reduced financial inclusion: De-risking may cut off access to the global financial system for remittance companies and local banks in certain regions, particularly smaller countries with limited financial markets.
- Threats to humanitarian assistance: Some humanitarian organizations have lost access to financial services due to de-risking, potentially affecting their ability to provide aid to refugees and vulnerable populations.
- Challenges to AML/CFT objectives: Pushing transactions into unregulated channels can hinder monitoring and transparency, undermining efforts to combat financial crimes.
Revolut’s Regulatory Journey
The fintech industry has closely watched Revolut‘s journey towards obtaining a UK banking license. As a leading player in the digital banking sector, the company’s strategies and interactions with regulators provide insights into the evolving landscape of fintech regulation and compliance.
Preliminary Opinion
Revolut‘s decision to terminate certain customer accounts as part of its de-risking strategy highlights the delicate balance fintechs must strike between innovation, customer service, and regulatory compliance. While this approach may be necessary for Revolut‘s banking license ambitions, it also underscores the broader challenges fintechs face in navigating complex regulatory environments. As the fintech sector continues to grow, companies like Revolut will likely continue to refine their strategies to align with regulatory expectations while striving to meet the needs of their customers.
Are You A De-Risked Client?
If you are a customer affected by Revolut’s de-risking strategy, please let us know via our whistleblowing system, Whistle42. We would like to know more about it.
